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Obama and Leaders Reach Debt Deal

President Obama spoke about a debt deal on Sunday.Credit
Philip Scott Andrews/The New York Times

WASHINGTON — President Obama and Congressional leaders of both parties said late Sunday that they had agreed to a framework for a budget deal that would cut trillions of dollars in federal spending over the next decade and clear the way for an increase in the government’s borrowing limit.

With the health of the fragile economy hanging in the balance and financial markets watching closely, the leaders said they would present the compromise to their caucuses on Monday in hopes of enacting it before a Tuesday deadline to avert default.

Even as the president was speaking from the White House on Sunday night, Speaker John A. Boehner was on a conference call with House Republicans, trying to sell them on the proposal he had signed off on only minutes before.

Since he is likely to lose the most conservative elements of his rank and file, Mr. Boehner faces the task of framing the pact as friendly enough to Republican principles to win over a significant group of House Republicans without alienating Democrats he will need to push it over the top.

President Obama, in a hastily called appearance with reporters that ended a day of uncertainty, said that the compromise would “allow us to avoid default and end the crisis that Washington imposed on the rest of America.”

“It ensures also that we will not face this same kind of crisis again in six months, or eight months, or 12 months,” he said. “And it will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy.”

Just before Mr. Obama spoke on television, the two Senate leaders, Harry Reid and Mitch McConnell, took the floor to endorse the pact as well.

On Monday morning, the effort on all sides to sell the complex plan to their wider public constituencies began in earnest. With Mr. Obama facing much criticism from the left for not pushing harder for tax increases on the rich, Gene Sperling, a top economic advisor, defended the deal on MSNBC. He said the deal protected Pell grants for college students and Medicaid spending, but perhaps more important, did not allow government to be held “hostage” by a Republican threat of default.

The tentative agreement calls for at least $2.4 trillion in spending cuts over 10 years, a new Congressional committee to recommend a deficit-reduction proposal by Thanksgiving, and a two-step increase in the debt ceiling.

The announcement concluded a tumultuous 24 hours that saw hopes rise Saturday night over the prospect of a deal that might have concluded the budget stalemate. By Sunday, worry set in again as lawmakers and White House officials struggled to hammer out the fine points of an agreement that must clear a Senate controlled by Democrats as well as the Republican House.

If the deal is approved, establishing a special joint committee to explore deficit reduction, it will ensure that the size and scope of the federal government and the tension between spending and taxes will remain front and center in the Washington debate headed into the 2012 election.

Markets reacted favorably to the announcement, with Asian markets jumping on news of the deal. The Nikkei was up nearly 2 percent in late-morning trading; the dollar rose against the Japanese yen.

President Obama tempered his comments by noting that “there are still some very important votes to be taken” and that winning House approval would be a particular challenge.

Photo

Senator Mitch McConnell, the minority leader, walked to the Senate floor to announce that a tentative deal had been reached.Credit
Harry Hamburg/Associated Press

On the conference call, Mr. Boehner sought to portray the new agreement as one heavily tilted toward the Republican call for no new revenue, and he said it met the goal of instituting cuts greater than the amount of the debt limit increase. In a presentation, he said the pact would prevent a “job-killing default” — a warning to lawmakers that failure to raise the limit could add to the bleak employment picture.

“Our framework is now on the table that will end this crisis in a manner that meets our principles of smaller government,” said Mr. Boehner, who said he hoped to get the legislation onto the House floor as quickly as possible. Participants on the call, which lasted about an hour, said that the tone was cordial and that lawmakers expressed less resistance than had been anticipated.

At the same time, Representative Nancy Pelosi of California, the former speaker and current Democratic leader, was noncommittal about the plan, suggesting that Democrats might not rally behind it. “I look forward to reviewing the legislation with my caucus to see what level of support we can provide,” she said in a written statement.

Senior White House officials said they were hopeful that Congressional leaders from both sides would manage to sell the deal to their parties. While “there are some Democrats who simply don’t believe in the necessity of deficit reduction,” one administration official said, “most do. I think it’s important as a party to show Americans that we’re serious about deficit reduction.”

The Senate seemed an easier sell. Senator Mike Johanns, Republican of Nebraska, said that from the terms of the deal described to him, “I think I will be satisfied and supportive.” After years of work, he noted, Congress has become “serious about cuts in spending.”

As conversations flowed between the White House and Capitol Hill early Sunday, Mr. Reid publicly embraced the compromise that would tie deep spending cuts to a debt ceiling increase even though some Democrats believed the White House has given too much ground to Mr. McConnell and Mr. Boehner.

While lawmakers awaited word of an agreement, talks dragged on. Congressional and administration officials attributed the delay to efforts by Mr. Boehner, Republican of Ohio, to limit immediate reductions in the Pentagon budget and better protect it from future cuts in order to cement votes from defense hawks. He needs those votes to win approval of the plan in the House.

Officials said that Mr. Boehner ultimately did not gain much and that the dispute was settled through an agreement to expand the definition of “security-related” spending to include departments beyond the Pentagon, spreading out potential cuts to the Department of Homeland Security and other agencies.

The tense, last-minute negotiations were taking place against a backdrop of uncertainty, with a looming threat of a costly downgrade of the nation’s credit rating and with investors worried about the global economic impact of a possible default. The political stakes were unusually high as well, with leaders in both parties staking out positions that may well be central to their re-election chances in 2012. Vice President Joseph R. Biden Jr. was on the phone all weekend with Republican leaders of the House and Senate.

Referring to the torturous negotiations, Senator Dianne Feinstein, Democrat of California, said: “Sausage making is not pretty. But the sausage we have, I think, is a very different sausage from when we started.”

But not everyone was pleased. “It may be the best we can do,” said Senator Jeff Sessions of Alabama, the senior Republican on the Budget Committee. “But I do not think it’s enough.”

With the talks appearing to make progress, the Senate blocked a Democratic proposal for a debt limit increase on a vote of 50-49, falling 10 votes short of the 60 required to limit debate. The plan that ultimately won the support of Congressional leaders was described by officials briefed on its outline. They said the debt limit would be increased by $900 billion in the first installment, subject to a Congressional vote of disapproval that Mr. Obama would be able to veto. To prevent a default, $400 billion would be added immediately.

A second increase of $1.2 trillion to $1.5 trillion would be available subject to a second vote of disapproval by Congress. At the same time, a new joint Congressional committee would be created to find cuts roughly matching the increase in the debt limit.

If the evenly divided committee failed to agree on a plan, Congress would either have to approve a balanced budget agreement to the Constitution or accept an across-the-board cut in spending in line with the committee’s goal, with 50 percent of the savings coming from the Pentagon beginning in 2013. Medicare would also sustain cuts, though the reductions would be capped; Social Security and other programs would be exempt.

The rationale for picking favored programs like the Pentagon for Republicans and Medicare for Democrats was to provide a strong incentive for the new committee to avoid a deadlock and deliver a deficit reduction plan that could clear Congress.

Correction: July 31, 2011

An earlier version of this story incorrectly stated when the automatic cuts would occur if Congress does not approve a second round in a few months. They would occur at the end of the year 2012, not 2011.

Robert Pear and Jackie Calmes contributed reporting.

A version of this article appears in print on August 1, 2011, on page A1 of the New York edition with the headline: Leaders Agree On Outlines Of Deal To End Debt Crisis. Order Reprints|Today's Paper|Subscribe